<p>@rolltide94 – TaxAct is calculating this correctly. The IRS changed the instructions this year for form 8615 to specify that the taxable portions of scholarships (basically anything other than what goes to pay for tuition, fees, and books) is now considered unearned income for purposes of the Kiddie Tax – which is calculated on form 8615. In prior years, scholarships were not on the unearned income list. The net result is a much higher tax hit on the housing scholarship for most people. (Turbotax does not calculate this correctly this year. It is still treating the taxable part of scholarships as earned income at least as of this past weekend.) Note that the taxable portion of scholarships is still defined as earned income for purposes of claiming the standard deduction, so at least that is a small offset.</p>
<p>Wait, so are you saying TurboTax is doing it wrong? Do I need to consult an accountant? I don’t remember seeing anything about form 8615. I wonder who I could talk to about this without having to pay an accountant?</p>
<p>@Lisa - I reported it to Turbo Tax. I was told it could take 10 days for them to review and make updates. Have not heard back from them yet. Meanwhile, I just overrode Turbo Tax and hand keyed. </p>
<p>I have received conflicting advice on the Housing portion from a few TPAs. I was told the 1098T COULD include amounts charged AND PAID in the 1st quarter of 2014. If it was actually PAID ie Bama credited the scholarship as paid in January 2014, then it is the taxpayer’s choice to claim as 2013 or 2014. Obviously, the NMF now only have 1 year of housing paid, so it would be beneficial to stretch that over 2 tax years. (The logic of claiming in either year follow the logic of IRA contributions). </p>
<p>@rolltide and Lisa – It is the Form 8615 that is killing us. We knew and anticipated paying the earned income at the student’s tax bracket. We did NOT plan on paying at the Parent rate. Like @Rolltide94, yes, DS’s taxes are now double what we set aside.</p>
<p>Looking at the Receivables Department timeline, I believe @FortunateDad is correct that both semesters housing was credited prior to 12/30. 
</p>
<p>FOR FALL 2014 NMF – Would be worth your time to contact Bama and request the Spring Housing not be credited until January going forward and explain the new tax laws may be taxed up to 25%.</p>
<p>@Lisa6191 – My job puts me in contact with many CPAs. Many are not up to speed on this (let’s face it, very few students have such generous scholarships), but once I explained the “change” from earned income to unearned income they all understood. If you decide to speak with a CPA, simplify the issue by telling them it is this change that is causing concern. </p>
<p>I’m going to wait a bit before I file to see what Turbo Tax does. From the research I did last night, it looks like different IRS publications say different things about it, and so far Turbo Tax has taken the position that it’s still earned income (despite the language in the instructions for form 8615). If it remains debatable, I might take my chances and do it Turbo Tax’s way - they have a guarantee, so if it’s wrong they will have to pay the penalties anyway. And doing it on form 8615 actually nearly quadruples what we owe. I’m still researching though.</p>
<p>According to this IRS publication it is still earned income: <a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>BamaMomof3 - I am hoping that publication is the winner. 
There is clearly a conflict between the two publications that will need to be resolved by the IRS at some point.</p>
<p>Neither Pubs nor Forms instructions are authoritative. I suspect that the change in 8615 instructions is more consistent with the IRS’ current interpretation, and “I ignored the forms instructions because they gave me a bad tax answer” is not as good of a taxpayer position as “I ignored the forms instructions because I believe they contradict the plain language of the statute.” (I personally do not believe that the forms instructions conflict in any way with the plain language of the statute.)</p>
<p>The relevant Code Section (which is authoritative) is 911(d)(2).
911(d)(2)Earned income.—
911(d)(2)(A)In general.—The term “earned income” means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.
911(d)(2)(B)Taxpayer engaged in trade or business.—In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income-producing factors, under regulations prescribed by the Secretary, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business, shall be considered as earned income.</p>
<p>Note in both subsections the emphasis on “compensation for personal services actually rendered,” and that both regular W-2 wages and self-employment income may not be considered earned income for Kiddie Tax purposes under a facts and circumstances test. </p>
<p>If you search the 1040 instruction booklet for “scholarship”, each return refers to taxable scholarship as earned income. Plus the section of the 1040 instructions that states when to use 8615 (pg. 40) does not include taxable scholarships. <a href=“http://www.irs.gov/pub/irs-pdf/i1040.pdf”>http://www.irs.gov/pub/irs-pdf/i1040.pdf</a></p>
<p>The entire purpose of the Form 8615 changed from “Tax for children with INVESTMENT INCOME” to “tax of UNEARNED Income”</p>
<p>The 2013 Form 8615 language specifies scholarships as being unearned. This is the first year with that specification and it was not published until December 2013. <a href=“http://www.irs.gov/pub/irs-pdf/i8615.pdf”>http://www.irs.gov/pub/irs-pdf/i8615.pdf</a> Prior the Form 8615 was only for Investment Income. here is the 2012 instructions <a href=“http://www.irs.gov/pub/irs-prior/i8615--2012.pdf”>http://www.irs.gov/pub/irs-prior/i8615--2012.pdf</a>. It is a very clear change.</p>
<p>The whole thing makes my head spin.</p>
<p>@allyphoe - the code section you cited is part of a larger section pertaining to US citizens living abroad. Are we sure the same rules apply to citizens living in the US?</p>
<p>The point of the Kiddie Tax is to prevent people from evading taxes by putting their own investments into their children’s names. It doesn’t seem like scholarship money should be treated the same way. Of course they have the right to make the law anything they want, but it seems like this change, if it is in fact a change, is contrary to the spirit of the law.</p>
<p>@lisa6191 - You start with the Kiddie Tax code section, 1(g), which refers you to Sec 911.</p>
<p>1(g)(4)(A)In general.—The term “net unearned income” means the excess of—
1(g)(4)(A)(i) the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2))</p>
<p>Unfortunately, the spirit of the law does not trump the plan language of the law. AMT was originally instituted to prevent a tiny handful of people (<30? something like that) from evading taxes, and that argument gets you precisely nowhere - people have litigated it unsuccessfully.</p>
<p>Neither 1040 instructions nor the titles of forms are authoritative, and carry zero weight.</p>
<p>So if I read correctly, the excess of benefit over expenses from the 1098 - approx. $2k - plus honors housing of $4400 per semester plus dining dollars plus meal plan = total taxable income of the student. Is that accurate?</p>
<p>Why dining dollars and meal plan???</p>
<p>Has anyone found out if you can spread the reported amount over 13 and 14 or since it was “received in 13 the total amount needs to be reported in 13 taxes”. This is what I was told by HR Block on-line assistance. There is also form 1-1 that is a worksheet that seems to lower the total amount. </p>
<p>Can you tell me where I can find Form 1-1. ???</p>
<p>Follow this link and look for Worksheet 1-1, Taxable Scholarship and Fellowship Income. <a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service; .</p>
<p>If your child gets a summer internship on campus, or at a job site in Alabama, he’ll have to pay state taxes on that, too. </p>
<p>Thank you all for the information. I will tackle taxes tomorrow. Tonight, I drink.</p>
<p>How much was the ipad worth?? I can not find the darn letter.</p>